The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Friday, May 6, 2011

Westpac calls June hike (more to follow)

The first of the major economists have shifted their rate hike profile forward, with Westpac averring that the RBA "surprises" with hawkish rhetoric--no surprise at all to anyone reading here--with the result that they have shifted their first rate hike from September to June...

"RBA surprises with hawkish rhetoric and bullish forecasts – expect a rate hike in June

The Reserve Bank's Statement on Monetary Policy (SoMP) has printed a set of forecasts that indicate that the Bank is very close to raising interest rates. We have consistently argued that the next move will be in the September quarter but a move in June has now become the more likely result.
In assessing the Bank's intentions the key indicators are their forecasts and the choice of words in the final paragraph of the introduction which assesses the policy stance. In today's final paragraph the following words are used: "The central outlook selected above suggests that further tightening of monetary policy is likely to be required at some point for inflation to remain consistent with the 2-3% medium-term target." Compare this with a statement in October 2010: "If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target." Recall that the Bank tightened at the following Board meeting in November.

The forecast for underlying inflation in 2011 has been increased from 2¾% to 3%; has been retained at 3% for 2012; but for the first time a forecast for 2013 has been printed and that number is 3¼%. Bear in mind that these forecasts are predicated on current market pricing for interest rates which up until now has only anticipated one rate hike by the middle of next year. In indicating that on the basis of current market pricing the Bank is likely to exceed its 2-3% target range it is reasonable to conclude that the Bank is sending a clear message that market pricing is too benign.

We also interpret the choice of 3% in 2011 as being equally hawkish and indicating that there is basically no room for slippage on the inflation target. In assessing the Bank's intentions the key indicators are their forecasts and the choice of words in the final paragraph of the introduction which assesses the policy stance. In today's final paragraph the following words are used: "The central outlook selected above suggests that further tightening of monetary policy is likely to be required at some point for inflation to remain consistent with the 2-3% medium-term target." Compare this with a statement in October 2010: "If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target." Recall that the Bank tightened at the following Board meeting in November.

The forecast for underlying inflation in 2011 has been increased from 2¾% to 3%; has been retained at 3% for 2012; but for the first time a forecast for 2013 has been printed and that number is 3¼%. Bear in mind that these forecasts are predicated on current market pricing for interest rates which up until now has only anticipated one rate hike by the middle of next year.

In indicating that on the basis of current market pricing the Bank is likely to exceed its 2-3% target range it is reasonable to conclude that the Bank is sending a clear message that market pricing is too benign. We also interpret the choice of 3% in 2011 as being equally hawkish and indicating that there is basically no room for slippage on the inflation target."

I love this column , which echoes my views on the subject (see here ). Excerpt below... IF the value of your total assets fell by 6 per c...

Hey there...

I first started blogging on ideas relating to economics, finance, investments and housing following an invitation from Business Spectator. Please note that I may have an economic interest in any of the items discussed here. You should also be aware that these are my own personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations. Readers are urged to seek professional advice before making any investments. Call 1800 YBR YBR to find a financial planner near you.

About Me

While this is a personal blog, professionally Chris is a director and strategic advisor to a number of funds management and financial services companies. In 2009 The Australian newspaper selected Chris as one of Australia’s top 10 “Emerging Leaders” in its economics category. In 2007 Chris was selected by The Bulletin magazine as one of Australia's "10 Smartest CEOs" and by BRW Magazine as one of "Australia's Top 10 Innovators". He previously worked for Goldman Sachs and the RBA. In 2008-09, the Australian Government invested $20 billion in a radical policy proposal developed by Chris to provide liquidity to Australia’s securitisation market. In February 2009, Chris was invited by the Rockefeller and MacArthur Foundations to present innovative policy solutions at the private Transforming America’s Housing Policy summit for Obama Administration officials. Chris served as a Director of The Menzies Research Centre from 2003-07. He has published widely on matters relating to financial economics, and is a regular TV and media commentator. He is a Research Affiliate with the Centre for Ideas and The Economy at Melbourne Uni.